Top 10 Most Profitable Pot Stocks

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Beyond the Bong
This is individual research and does not constitute investment advice.

“One thing nice about the investment business is that, even though I’m 68, I continue to learn. You learn something every month and every quarter.”

Wall Street legend Leon Cooperman made that statement almost a decade ago. And I couldn’t agree with it more.

The hedge fund icon makes a number of appearances in today’s issue, for more than one reason.

You know, sometimes keeping up with the cannabis news flow is like trying to drink from a fire hose.

Last week was one of those weeks…

Harvest Health & Recreation (OTC: HRVSF) upped the ante by gobbling up Verano Holdings for $850 million.

This was huge.

It topped MedMen Enterprises’ (OTC: MMNFF) $682 million acquisition of PharmaCann in October as the largest deal in U.S. cannabis history.

With the absorption of Verano, Harvest Health – probably not a household name among most pot investors – instantly catapults to platinum status.

The company will now be one of the largest U.S. multistate operators, with operations in 11 states and 37 retail licenses.

But the mergers and acquisitions activity didn’t stop there…

HEXO Corp. (NYSE: HEXO) swooped in and nabbed Newstrike Brands for $263 million. This boosts HEXO’s capacity to 150,000 kilograms and increases its number of provincial distribution agreements to eight.

HEXO then reported second quarter gross revenue increased 1,269% to $16.2 million. On top of that, gross adult-use revenue in the quarter exceeded all of last year’s revenue by 200%!

But that wasn’t the only earnings news…

We also heard from Acreage Holdings (OTC: ACRGF), Valens GroWorks (OTC: VGWCF), Delta 9 (OTC: VRNDF) and Innovative Industrial Properties (NYSE: IIPR).

I’ve long been a fan of Innovative Industrial because it’s the only dividend-paying pure cannabis play. And it just increased its quarterly payout 29%.

Not to mention the cannabis real estate investment trust makes an appearance in this week’s “Making the Grade.”

If that wasn’t enough, we had a deluge of legalization news…

Now, pretty much every single Democratic presidential candidate is looking to legalize marijuana at the federal level. That’s not market-moving information.

But Reps. Tulsi Gabbard and Don Young introduced two bipartisan cannabis bills earlier this month – the Ending Federal Marijuana Prohibition Act and the Marijuana Data Collection Act.

Still, the biggest trigger came from the Garden State.

New Jersey announced a bill to legalize adult-use. If it passed, sales would begin January 1, 2020.

Gov. Phil Murphy is projecting only $60 million in marijuana tax revenue in the first six months of legalization… That’s on the “blah” side.

Hearings on the state bill begin today. Adult-use is likely to pass. But I’d like to see the proposed excise tax on growers come down from $42 per ounce.

In Connecticut, lawmakers drafted their own legislation to greenlight adult-use. They’re forecasting $100 million in annual revenue.

Lastly, Florida ended its ban on medical marijuana smoking. This allows patients to receive 2.5 ounces of dried flower every 35 days.

All of this news sparked some pops in cannabis shares.

Making the Grade

In this week’s “Making the Grade,” my team and I decided to look at trailing 12-month net income.

Pot companies are still in their early stages. So even though revenue is skyrocketing as new markets go live, they’re spending a lot for growth.

That means net income and profits are hard to come by.

But here are the top 10 cannabis companies ranked by net income over the past 12 months…

As we can see, Aphria (NYSE: APHA) is at the top. The wholesale producer is one of the lowest-cost producers in the industry.

At No. 2, we have OrganiGram Holdings (OTC: OGRMF). Longtime readers know that I’m fond of the Canadian company. It’s not a household name like some of the other bigger players, but it’s one of the companies investors should be tuned in to.

In fact, OrganiGram CEO Greg Engel is my guest in this week’s episode of CannaBiz Now! So be on the lookout for that.

Innovative Industrial Properties is up there, as well as U.S. CBD stars Charlotte’s Web (OTC: CWBHF) and CV Sciences (OTC: CVSI). Then there’s Medicine Man Technologies (OTC: MDCL), which has appeared several times in “Making the Grade” in recent weeks.

Plus, one of our top five pot stocks to watch this week is on both lists…

The High Five

1) Curaleaf Holdings (OTC: CURLF) will be one of the biggest winners if New Jersey adult-use legalization is approved. The company is already the largest dispensary operator on the East Coast. And it currently controls 40% of New Jersey medical marijuana prescriptions.

The company will report fourth quarter earnings on Wednesday.

2) Trulieve Cannabis Corp. (OTC: TCNNF) is plowing along at full steam in Florida. It’s the largest operator in the state, controlling more than 60% of the medical market, and it just opened its 25th dispensary. Revenue is on track to double this year to more than $215 million.

3) Green Thumb Industries (OTC: GTBIF) is one I’ve been asked about a lot. Billionaire Leon Cooperman, chairman of Omega Advisors, announced in October that he has a stake in the company. Cooperman also has a stake in CannTrust and iAnthus.

But Green Thumb is in an excellent position to benefit from all the state news last week. It has not only operations in New Jersey and Connecticut but also 30 retail locations in Florida. Not to mention, it has the thumbs-up from a hedge fund legend.

4) Emerald Health Therapeutics (OTC: EMHTF) and Village Farms International (Nasdaq: VFF) announced their Pure Sunfarms joint venture is now licensed for 1.03 million square feet in 16 grow rooms. And the new grow area is expected to be fully planted by the end of March.

Emerald also delivered its first cannabis shipment to Ontario Cannabis Retail Corporation.

5) CannTrust Holdings (NYSE: CTST) is another of Cooperman’s holdings, as well as another stock I was asked about following last week’s issue.

There are companies that I really like in the space, and CannTrust is one of them. The Canadian producer is on track to produce 100,000 kilograms annually in the second half of 2020. And its production costs are quite favorable, as it strives to get them down to CA$0.25 per gram.

In the third quarter, CannTrust once again reported positive net income. That’s a rarity in the cannabis space. But it’s something the company has been able to do since 2017.

Plus, there’s a lot to like about the cannabis oil company with infused beverages and edibles on the way. And we have fourth quarter results coming up from CannTrust soon.

Now, our High Five this week have already delivered a fantastic 2019.

Each has gained more than 40% year to date. But only two are currently outperforming our benchmark, the Horizons Marijuana Life Sciences ETF (OTC: HMLSF)…

Green Thumb and CannTrust have both gained more than 64% in 2019. But you can see how the New Jersey news triggered a bounce in Curaleaf’s shares.

Last week was one of the most newsworthy for pot stocks in some time. But I don’t think we’ll see a slowdown soon.

I think 2019 is going to be dominated by state legalization and congressional bills. And that’s going to move stocks.

As a reminder, keep a lookout for Thursday’s CannaBiz Now! with OrganiGram’s Greg Engel. He shares with us his thoughts on the Canadian adult-use market, as well as the potential of the upcoming infused beverage and edibles market.

If you have a pot stock in mind that you’d like me to discuss here, leave the ticker symbol in the comments section.

Good investing,

Matthew